IRS Tax Updates for 2027: Bigger Standard Deduction, Higher Brackets, and What It Means for You

The IRS just released its annual inflation adjustments for tax year 2027, and while tax rates aren't changing, almost 70 provisions are getting a bump to keep up with inflation.

This isn't a tax cut — it's the IRS adjusting the thresholds so inflation doesn't push you into a higher bracket for earning the same real income. Here's what matters most.

1. Standard deduction is going up

About 9 in 10 taxpayers take the standard deduction, so this is the change most people will feel:

• Married filing jointly: $33,200, up $1,000 from 2026
• Single / married filing separately: $16,600
• Head of household: $24,925

Personal exemptions remain at $0, as they have since the Tax Cuts and Jobs Act.

2. Tax brackets are shifting higher

The seven rates — 10% to 37% — stay the same. What moves is the income range for each rate, up about 3.2%.

For 2027, for single filers:

• 10%: up to $12,800
• 12%: over $12,800
• 22%: over $52,025
• 24%: over $109,125
• 32%: over $208,325
• 35%: over $264,550
• 37%: over $661,375

For married couples filing jointly, the top 37% rate starts at $793,650. The 22% bracket now runs up to $218,250 for joint filers.

Remember: the U.S. system is progressive. A higher bracket only applies to the portion of income in that bracket, not your whole income.

3. Child Tax Credit and EITC increase

• Maximum Child Tax Credit: $2,300, up $100 from 2026. The refundable portion is now $1,800, also up $100.
• Maximum Earned Income Tax Credit for families with 3+ kids: $8,496, up from $8,231.

4. Estate and gift taxes

• Estate tax exclusion: $15.48 million for people who die in 2027, up from $15 million in 2026.
• Annual gift exclusion: $20,000 per person, up from $19,000.

5. Other updates worth knowing

• Foreign earned income exclusion: $137,300, up from $132,900
• Health FSA limit: $3,500, up $100, with a $700 carryover max
• Qualified transportation / parking monthly limit: $350, up $10
• Adoption credit max: $18,250, up from $17,670
• Section 179 expensing for businesses: up to $2,640,000, up from $2,560,000
• AMT exemption: $93,000 for single filers, $144,700 for joint filers

6. Capital gains thresholds

Long-term capital gains (assets held more than a year) and qualified dividends keep the 0%, 15%, and 20% rates — only the income thresholds move up about 3.2%:

• 0% rate: taxable income up to $51,050 single, $102,100 married filing jointly, $68,350 head of household (up from $49,450 / $98,900 in 2026)
• 15% rate: up to $563,200 single, $633,600 joint, $598,400 head of household
• 20% rate: above those amounts

These thresholds are total taxable income, including the gain itself — not just the gain. Short-term gains (held one year or less) are still taxed as ordinary income, at 10% to 37%.

One thing that doesn't move: the 3.8% Net Investment Income Tax still kicks in at $200,000 single / $250,000 joint MAGI, unchanged since 2013 — it's not indexed for inflation.

What should you do now?

1. Don't change your 2026 return — these numbers are for money you earn in 2027.
2. Check your withholding in early 2027 with the IRS Tax Withholding Estimator. Higher brackets could mean a slightly bigger paycheck if your employer adjusts withholding.
3. If you're near a bracket threshold, this gives you a little more room before you hit the next rate — useful for Roth conversions, bonus timing, or year-end planning.
4. Revisit your budget. A $1,000 higher standard deduction for joint filers won't transform your finances, but combined with higher brackets and credits, it's real breathing room.

The bottom line for financial freedom: inflation adjustments don't make you richer, but they stop inflation from quietly making you poorer through taxes. Use that breathing room intentionally — to save, invest, or pay down debt.

This post is for general information only and isn't tax advice. Talk to a tax professional about your specific situation.

Source: IRS IR-2026-133, Nov. 5, 2026 (Rev. Proc. 2026-35)
https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2027-taxpayers-continue-to-benefit-from-the-working-families-tax-cuts